Costco

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Costco Wholesale Corporation
Public
Traded as NASDAQCOST
NASDAQ-100 Component
S&P 100 Component
S&P 500 Component
Industry Retail
Predecessor Price Club
Founded July 12, 1976; 42 years ago (1976-07-12) (as Price Club)
San Diego, California
September 15, 1983; 34 years ago (1983-09-15) (as Costco)
Seattle, Washington
Founders James Sinegal
Jeffrey Brotman
Headquarters Issaquah, Washington, United States
Number of locations
750 warehouses (May 2018)[1]
Area served
United States, Canada, Mexico, United Kingdom, Japan, South Korea, Taiwan, Australia, Spain, Iceland, France
Key people
Jim Sinegal
(Founder)
Hamilton E. James
(Chairman)
W. Craig Jelinek[2]
(President and CEO)
Richard Galanti[2]
(Vice President and CFO)
Paul Moulton[2]
(CIO)
Timothy L. Rose
(Executive Vice President)
Brands Kirkland Signature
Services Merchandise
Cash & Carry
Warehouse club
Revenue Increase US$129.0 billion (2017)[3]
Increase US$4.111 billion (2017)[3]
Increase US$2.679 billion (2017)[3]
Total assets Increase US$36.35 billion (2017)[3]
Total equity Decrease US$11.08 billion (2017)[3]
Number of employees
Increase 231,000 (2017)[3]
Website www.costco.com
Costco's original logo. Used until 1993, but stores continued to carry the logo until 1997.

Costco Wholesale Corporation, trading as Costco, is an American multinational corporation which operates a chain of membership-only warehouse clubs.[4] As of 2015, Costco was the second largest retailer in the world after Walmart,[5] and as of 2016, Costco was the world's largest retailer of choice and prime beef, organic foods, rotisserie chicken, and wine.[6]

Costco's worldwide headquarters are in Issaquah, Washington, but the company opened its first warehouse in nearby Seattle in 1983.[7] Through mergers, Costco's corporate history dates back to 1976, when its former competitor Price Club was founded in San Diego, California.[8][9][10] As of July 29, 2018, Costco had a total of 751 warehouses; In the United States (519), Canada (100), Mexico (38), United Kingdom (28), Japan (26), South Korea (14), Taiwan (13), Australia (9), Spain (2), Iceland (1) and France (1).[1]

History[edit]

Costco in Tlalpan, Mexico City
Costco in Markham, Ontario, Canada
Australia's first Costco outlet, at Docklands, Victoria
Costco in Hashima, Gifu, Japan

Price Club and the birth of the retail warehouse concept[edit]

Costco's history began with Sol Price and his son, Robert, opening the first Price Club warehouse on July 12, 1976, on Morena Boulevard in San Diego, California, thus giving birth to a new concept: a retail warehouse club. The Price family placed Price Club Warehouse #1 inside a series of old airplane hangars[9][10] previously owned by Howard Hughes; that warehouse, now known as Costco Warehouse #401, is still in operation today.[11]

Costco opens[edit]

Costco opened its first warehouse in Seattle, Washington, on September 15, 1983,[9] by James (Jim) Sinegal and Jeffrey H. Brotman.[12] Sinegal had started in wholesale distribution by working for Sol Price at FedMart and Brotman, an attorney from an old Seattle retailing family, had also been involved in retail distribution from an early age. He began his retail involvement as a grocery bagger.[13]

The "PriceCostco" merger[edit]

In 1993, Costco and Price Club agreed to merge operations themselves after Price declined an offer from Sam Walton and Walmart to merge Price Club with their warehouse store chain, Sam's Club.[14] Costco's business model and size were similar to those of Price Club, which made the merger more natural for both companies.[10] The combined company took the name PriceCostco, and memberships became universal, meaning that a Price Club member could use their membership to shop at Costco and vice versa. PriceCostco boasted 206 locations generating $16 billion in annual sales.[9] PriceCostco was initially led by executives from both companies, but then the Price brothers soon left the company in 1994 to form Price Enterprises,[10][15] a warehouse club chain in Central America and the Caribbean unrelated to the current Costco.[16]

In 1997, the company changed its name to Costco Wholesale Corporation and all remaining Price Club locations were rebranded as Costco.[9][10]

Locations[edit]

Map of Costco warehouses in the US (August 2010).[needs update]

As of July 2018 Costco has 750 warehouses worldwide[1]:

  • 520 in 44 US states and Puerto Rico
  • 100 in 9 Canadian provinces
  • 38 in 18 Mexican states
  • 28 in the United Kingdom
  • 26 in Japan
  • 14 in Korea
  • 13 in Taiwan
  • 9 in 4 Australian states and the Australian Capital Territory
  • 2 in Spain
  • 1 in Iceland
  • 1 in France

Other company milestones[edit]

On April 26, 2012, CNBC premiered its documentary, The Costco Craze: Inside the Warehouse Giant.[17]

In 2014, Costco was the third largest retailer in the United States.[18] That year Costco announced plans to open an online store in China using Alibaba Group.[19]

Costco today[edit]

In the United States, Costco's main competitors operating membership warehouses are Sam's Club and BJ's Wholesale Club.[20] Costco employs more than 205,000 full and part-time employees worldwide.[21] In 2016, Costco had 85 million members.[22] In 2017, Costco had 90.3 million members.[1]

Costco was the first company to grow from zero to $3 billion in sales in under six years.[9] For the fiscal year ending on August 31, 2012, the company's sales totaled $97.062 billion, with $1.709 billion net profit.[21] Costco is 18th on the 2015 Fortune 500.[23] The ACSI (The American Customer Satisfaction Index) named Costco number one in the specialty retail store industry with a score of 84 in 2014.[24]

From December 2013, Costco's board of directors was chaired by co-founder Jeffrey H. Brotman and included James Sinegal, co-founder and director, and two officers of the company: president/CEO W. Craig Jelinek and CFO Richard A. Galanti. On August 1, 2017, Jeffrey Brotman died.[25] As of August 2017, James Sinegal and W. Craig Jelinek remain on the board.

Sales model[edit]

Costco warehouse interior in Mountain View, California

Costco focuses on selling products at low prices, often at very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Furthermore, Costco does not carry multiple brands or varieties where the item is essentially the same except when it has a house brand to sell, generally under the Kirkland Signature label. This results in a high volume of sales for the brand in question, allowing further reductions in price and marketing costs. A typical Costco warehouse carries only 4,000 distinct products, while a typical Walmart Supercenter carries approximately 140,000 products.[6]

If Costco feels the wholesale price of a product is too high, they will refuse to stock the product. For example, in November 2009, Costco announced that it would stop selling Coca-Cola products because the soft-drink maker refused to lower its wholesale prices.[26] Costco resumed selling Coca-Cola products the following month.[27][28] Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must use a shopping cart, bring their own bags, or use empty merchandise shipping boxes from the company's vendors.

Lighting costs are reduced on sunny days, as most Costco locations have several skylights. During the day, electronic light meters measure how much light is coming in the skylights and turn off an appropriate percentage of the interior lights. During an average sunny day, it is normal for the center section of the warehouse not to have interior lights in use.[29]

Most products are delivered to the warehouse on shipping pallets and these pallets are used to display products for sale on the warehouse floor. This contrasts with retail stores that break down pallets and stock individual products on shelves. Most products sold at Costco have an 8% to 10% markup, while Kirkland Signature brand products have a 15% markup.[30][31] The company runs very lean, with overhead costs at about 10% of revenue and profit margins at 2%.[6] It has no public relations department and does not buy outside advertising.[6] Costco's annual membership fees accounts for 80 percent of Costco's gross margin and 70 percent of its operating income.[32]

Products[edit]

Costco has a frequently changing inventory and is known for carrying products for a time, then discontinuing them or using them as seasonal products.[citation needed] Over the years, Costco has gradually expanded its range of products and services. Initially, it preferred to sell only boxed products that could be dispensed by simply tearing the stretch wrap off a pallet. It now sells many other products that are more difficult to handle, such as art, books, caskets, clothing, computer software, fine wine, furniture, home appliances, home electronics, hot tubs, jewelry, perishable items (such as dairy, fresh baked goods, flowers, fresh produce, meat, seafood), solar panels, tires, and vacuum cleaners. Many warehouses also have gas stations, pharmacies, hearing aid centers, optometrists, eye and sunglass centers, photo processors, and tire garages. The produce items that require refrigeration are kept in a walk-in refrigerator, and several locations even have a walk-in refrigerator for dairy items.

Some locations have liquor stores, often kept separate from the main warehouse in order to comply with liquor license restrictions. In some states (such as Texas), the liquor store must be owned and operated by a separate company with separate employees.[33] In 2006, Costco lost a lawsuit against the state of Washington in which it was seeking to purchase wine directly from the producer, bypassing the state retail monopoly.[citation needed] In Australia, Costco has to comply with regulations set by each state they choose to trade in; their first store in the state of Victoria benefits from some of the most liberal alcohol licensing laws in the country, with retailers permitted to sell alcohol on shelves within the store, in a manner similar to most European countries. In the Canadian province of Quebec, beer and wine are sold within the stores from pallets.

Kirkland Signature[edit]

Kirkland Signature logo
Kirkland Signature branded bottled water, pictured in 2005

"Kirkland Signature" is Costco's private label. It is sold by Costco at their website and warehouses, and is trademarked by the company. The name is derived from the location (from 1987 to 1996) of Costco's corporate headquarters, Kirkland, Washington.[34]

Costco introduced Kirkland Signature as its private label in 1992. The idea was to provide brand name quality products at discounted prices.[35] To counteract the consumer confidence problem common in store branding, Kirkland Signature occasionally employs co-branding. According to Costco, while consumers may be wary of same-store branding, they are less likely to be wary of brands that they are familiar with and trust.[36]

Publications[edit]

The Costco Connection is a magazine sent free to members of Costco; it can also be accessed online by anyone, free of charge.[37] The magazine, established in 1987,[38] features articles which regularly tie into the corporation along with business, celebrity features, cooking, entertaining, health, home improvement, and social articles, as well as coupons and ads. MediaPost reports: "While about 90% of the magazine’s advertising is co-op, increasingly national advertisers such as Procter & Gamble are buying space, notes Roeglin -- presumably because of the pub’s gargantuan reach and the data it has on its subscribers (whose average household income is $156,000 a year). 'We see about 56% of our subscribers a month buy something at one of our stores based on something they've read in the magazine,' says Roeglin."[39] The magazine is the largest-circulation print monthly in the United States.[39] Costco also publishes the Costco Household Almanac and a cookbook series.[40]

Services[edit]

Concierge service[edit]

Costco offers a free "concierge" service to members who purchase electronics, to help answer questions regarding setup and use and avoid potential returns due to not understanding how to use the products.[41]

Costco acts as an investment broker and travel agent. Costco has an agreement with Ameriprise for auto and home insurance. In 2004 Costco offered an original artwork by artist Pablo Picasso on their online store; more recently[when?] a highly regarded 1982 Mouton Rothschild wine was offered as well as other rare wines in rotation.[citation needed]

Costco Photo Center is a multi-functional photography printing lab offering services at the warehouses as well as through their web site, costcophotocenter.com. The website provides free unlimited digital file storage with a current membership. Previous to May or June 2010, Costco had an agreement with Mypublisher.com for custom book and calendar publishing. Now,[when?] they print the photobooks and calendars themselves.

Costco Auto and Tire[edit]

As of September 2015, Costco was the second largest auto seller in the US, just behind AutoNation.[42] Costco regularly teams up with various automobile manufacturers to offer special deals to customers, e.g., Polaris (a leading seller of powersport vehicles) in 4Q2015[42] and General Motors from October 2015 through January 2016.[43] Addicted to Costco lists the following as some benefits of the Costco Auto Program:[43]

  • A low, prearranged price for Costco members
  • All available national manufacturer incentives
  • An easy, hassle-free experience at more than 3,000 hand-selected dealerships nationwide
  • Dealerships that understand the program and their processes, and feature specially trained and certified Authorized Contacts to assist Costco members

Costco business services[edit]

On March 9, 2005, NOVA Information Systems (NOVA) partnered with Costco to market and support payment processing services to Costco Canada's Business Executive Members.[44]

Costco Optical[edit]

Costco Optical ranks as the fifth-largest optical company in the US, as of 2015.[45] Optometrists working at Costco locations will see patients without Costco memberships,[46] although a membership is required to fill a prescription at the optical department.[47]

Costco Travel[edit]

Costco Travel is a wholly owned subsidiary of Costco Wholesale and offers leisure travel to Costco members of the United States and Canada.[48] The program was established in 2000 as a service to Costco members. Costco Travel's offices are located in Issaquah, Washington, adjacent to Costco's corporate headquarters. Costco Travel employs over 700 travel professionals, all of them Costco employees.

The program offers vacation packages to the Caribbean, Europe, Florida, Hawaii, Las Vegas, Mexico, and the South Pacific.[citation needed] Other products include car rentals, cruises, guided vacations, and theme park packages. Select products feature additional benefits for Costco Executive Members.[citation needed]

The program is marketed directly to Costco members through various Costco avenues, including the Travel Guide to Savings (found in all U.S. Costco warehouses) and in the Travel section of Costco.com.[citation needed]

Food service[edit]

Food concession stand at the Costco warehouse in Overland Park, Kansas

Most (if not all) Costco locations have a food court.[49] They can be indoors or outdoors,[50] but the menu is essentially the same: hot dog with drink (one of the food court's most popular items), pizza, frozen yogurt, various drinks, baked items, and sandwiches. Sometimes, seasonal items are in the menu. Costco offers a quarter-pound 100% beef hot dog and 591 millilitres (20.8 imp fl oz; 20.0 US fl oz) drink (with refills) for US$1.50, the same price since 1985.[51][52][53] In Australia, the hot dog is made of pork and is sold with a large soda for AUD$1.99. In Canada, the price for a hot dog and soda with refills is C$1.50.[54] In Mexico, the hot dog is made of 100% beef and includes a drink (with refills) for MXN$30. In the UK, the hot dog is also made from beef and customers also get a drink (with refills) for £1.50. Costco sold more than 137 million quarter-pound (113 g) hot dogs in its food courts in 2017.[53]

Cheese, pepperoni, veggie, or combo pizza is also available in most locations, and can usually be ordered to go, making Costco arguably the 14th largest pizza chain in the US in 2010.[55] Frozen yogurt is also served in chocolate, vanilla, or swirl. Costco also offers fruit smoothies, latte freeze (without chocolate), mocha freeze (with chocolate), beef bake,[56] chicken bake, turkey provolone sandwiches, twisted churros, chicken Caesar salads, beef brisket sandwiches, beef chili with beans, and in some locations, gelato. French fries are also offered in some locations. Some of the food court items are only available in certain countries. For example, the bulgogi bake is only available in Korea and Japan and poutine is only available in Canada. There are, however, temporary menu items available exclusively in several countries, like the pizza al pastor in Mexico.[57][58] [59][60] The nutrition data for the Costco Food Court items is posted online.

Due to slow sales, in 2009 the pretzel was replaced by the churro.[61] In April 2013, Pepsi replaced all Coca-Cola fountain drinks at US locations because Coke had raised its prices; this helped keep the hot dog combo with soda at its original US$1.50 price.[62]

In select Costco food courts, Costco will sell cheeseburgers for a limited time to experiment sales. It will possibly be a new menu item if it has a success.[63]

Online photo site[edit]

In December 2005, Costco signed an agreement with PhotoChannel Networks Inc., whereby Costco could deploy the PNI Digital Media Platform to offer online photo printing for Costco members through the website.[64]

On July 17, 2015, Costco disabled their online photo site.[65] In common with other retailers,[66] there is currently no confirmation about whether hackers had stolen Costco customers' photographs or data. As of August 1, 2015, Costco was estimating the website might return in mid August, after a four-week outage.[67]

Online shopping[edit]

On April 17, 2001, Costco Wholesale opened a B2B (Business to Business) online shopping site at costco.com for faster and easier business shopping.[68]

The domain costco.com attracted at least 58 million visitors in 2008, according to a Compete.com survey.[69] Costco.com is for United States members; costco.ca is for Canadian members, and other countries, such as Mexico, South Korea, Taiwan and the UK, each has its own online Costco shopping website.

Instacart offers Costco delivery in a select number of states including Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Missouri, North Carolina, New Jersey, New York, Oregon, Tennessee, Texas, Virginia, Washington, and the District of Columbia.[70] No membership is needed to order from Costco on Instacart, but Instacart charges delivery fees and the prices may not necessarily be the same as in a Costco warehouse. Similarly, in March 2017, Costco initiated a partnership with Shipt, an online grocery delivery service. Unlike Instacart, Shipt charges its own membership fee, $99 a year or $14 a month, in exchange for free delivery on orders over $35. As of April 2017, Shipt only offers Costco delivery in the Tampa, Florida metropolitan area.[71]

In October 2017, Costco launched same-day and two-day grocery delivery options for members.[72]

Labor relations[edit]

While some former Price Club locations in California and the northeastern United States are staffed by Teamsters,[73] the majority of Costco locations are not unionized although there seems to be a move in 2012 to unionize some locations in Canada.[74] The non-union locations have revisions to their Costco Employee Agreement every three years concurrent with union contract ratifications in locations with collective bargaining agreements. The Employee Agreement sets forth such things as benefits, compensations, wages, disciplinary procedures, paid holidays, bonuses, and seniority. The Employee Agreement is subject to change by Costco at any time and offers no absolute protection to the workers. As of March 2011, non-supervisory hourly wages ranged from $11.00 to $21.00 in the U.S., $11.00 to $22.15 in Canada, and £8.50 to £11.50 in the United Kingdom. In the U.S. as of 2005, eighty-five percent of Costco's workers had health insurance, compared with less than fifty percent at Walmart and Target.[75] Health benefits include coverage through Aetna, remote primary care through Teladoc, second opinions and clinical navigation by Grand Rounds, and wellness coaching by Omada.

Product-demonstration (e.g., food samples) employees work for an outside company. In the western U.S., the company is called Warehouse Demo Services, Kirkland, Washington.[76] Costco also uses Club Demonstration Services, based in San Diego, California.[77] In Canada, demonstrations are done exclusively by Professional Warehouse Demonstrations.[78] Demonstration employees receive a pay and benefit package that is less than that of Costco employees. As of August 1, 2017, demonstrations/samples are provided by CDS in Canada.[79]

In 2014, The Guardian reported that Costco is a client of Charoen Pokphand Foods. Over six months, The Guardian traced down a supply chain from slave ships in Asian waters to leading producers and retailers. Costco has published a statement saying it has had a supplier code of conduct since 1999 which does not allow this practice, and that independent auditors check for violations regularly.[80][81][82][83]

International locations and other centers[edit]

Warehouses outside the US are similar to those in the US. Layout, signage, and even parking lot markings are generally identical to warehouses in the US.[citation needed] Food court menus are tailored to international tastes, with meat pies on offer in Australia, poutine in Canada, seafood-topped pizza in Asian and Mexican locations, clam chowder in Japan, South Korea, and Taiwan, and jacket potatoes in the UK.[84] Additionally, Costco has led a strategic initiative within the past year to enhance their merchandise mix available within international warehouses to tailor products to local tastes, with a mix of both American and local products available.

Expansion worldwide[edit]

Costco announced it opened 29 new locations in 2016, the most in one year since 2007.[85][86]

Largest location[edit]

In 2005, the world's largest Costco was located in Hillsboro, Oregon.[87] In 2015, Costco completed an expansion in Salt Lake City, making it the new largest Costco at 235,000 square feet.[88] In 2011, Costco's highest volume store was in Seoul, South Korea.[89]

Costco Business Centers[edit]

Costco Business Centers are warehouses similar to regular Costco warehouses, and are open to all Costco members, regardless of membership type. Their merchandise, though, cater predominantly to enterprises, with a focus on small businesses. Business Centers do not carry most consumer items like clothing, jewelry, media, and tires, while carrying larger quantities and more options for the business products they do carry.[90] They do not offer most of the consumer-oriented services found at regular Costco warehouses, but some locations do have a food court or a gas station or both. Also unlike regular warehouses, most Costco Business Centers have a Print & Copy Center which provides printing professional services. They have large parking spaces for trucks and are capable of delivering goods to businesses in bulk quantities. Finally, opening hours are shorter than regular warehouses (usually opening at 7 am on Mondays to Saturdays and closed on Sundays), while discounts and coupons for Business Centers are issued separately from regular warehouses.[citation needed]

Locations[edit]

As of August 2017, there are 17 Costco Business Centers in the United States, located in Orlando, Florida; Phoenix, Arizona; California (Commerce, Hawthorne, Hayward, North Hollywood, San Diego, South San Francisco and Westminster); Denver, Colorado; Morrow, Georgia; Bedford Park, Illinois; Hackensack, New Jersey; Las Vegas, Nevada; and Washington (Lynnwood, and Fife).[91]

The first Costco Business Center outside the US opened in Canada in Scarborough, Toronto in spring 2017.[92]

Discontinued concepts[edit]

Costco Home[edit]

The first Costco Home warehouse opened in 1983 and was rebuilt / expanded in 2002 in Seattle.[93] The warehouse's concept was to combine the value, setting and members-only elements of Costco's warehouse clubs with the product array one would find at an upscale home store, such as Fortunoff or Crate & Barrel. The Costco Home warehouses sold furniture, housewares, kitchen products and accessories from higher-end brands such as Lexington, Ralph Lauren and Waterford[94] in a warehouse-club setting. Costco claimed that, similar to its main warehouses, it accepted lower margins in return for greater volume with minimal overhead.

Over time, the concept was adjusted to include home electronics, some major appliances, office furniture, and a large selection of outdoor furniture and window treatments. Costco also partners with Glentel subsidiary WIRELESS etc. to sell mobile phones and plans in Canada and Wireless Advocates in the US.

On April 2, 2009, the company announced that it would be abandoning its Costco Home concept, closing the two existing stores in Kirkland, Washington and Tempe, Arizona on July 3, 2009, and abandoning plans for a third store on the West Coast.[95] The company cited cutbacks in consumer spending on home products and its interest in focusing on its core business as the main reasons.

Controversies[edit]

In 2010, Mercy for Animals conducted an undercover investigation at Buckeye Veal Farm, a veal supplier to Costco.[96] Immediately following the investigative release, Costco adopted a policy against purchasing veal from producers that use the crate-and-chain production method.[97] The case prompted Ohio lawmakers to vote in favor of a veal crate phase-out in the state.[98]

In 2012, Mercy for Animals conducted an undercover investigation at a pork supplier to Costco, Walmart, Safeway, Kroger, and Kmart.[99] Before the public release of the investigation, Costco announced they would begin requiring their pork suppliers to phase out gestation crates.[100][101]

In 2015, The Humane Society of the United States conducted an undercover investigation at an egg supplier to Costco.[102] An undercover worker at Hillandale Farms, a major egg supplier to Costco, filmed conditions in which egg-laying hens lived in tiny, wire cages. [103] Following the investigations, several celebrities including Brad Pitt and Ryan Gosling publicly wrote to Costco to address this issue.[104] Following efforts by animal protection nonprofits including The Humane League,[105] Costco released an updated commitment to source exclusively cage-free eggs in its operations.[106]

In 2016, a follow up to Costco's shift to cage-free eggs by animal rights group Direct Action Everywhere (DxE) reported cannibalism and high mortality at a cage-free Costco egg supplier.[107][108] Costco denied the allegations, but the video sparked a discussion about animal welfare problems continuing to exist at cage-free egg farms.[107] Writing in The Huffington Post, DxE co-founder Wayne Hsiung argued that the new investigation, rather than suggesting that Costco should keep birds in cages, indicated that hens should have the right not to be raised for food or kept on farms at all.[109]

In August 2017, a federal judge ordered a “deceptive” Costco to pay Tiffany & Co. $19.4 million for misleading consumers into thinking they could buy legitimate Tiffany merchandise at warehouse club prices.[110][111]

See also[edit]

References[edit]

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